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When I was a young boy, I would always see kids selling lemonade in front of their homes and making decent profits. I knew that if I was going to have any chance at making some money in my neighborhood, I would have to come up with a better strategy.

My good friend Tim Wood, who is more of a strategy than an actual person, was good at managing businesses and gave me some great advice. He told me just because everyone else is selling their lemonade one way didn’t mean I had to follow. He expressed the importance of adding value to my business, which would lead people to support my product.

I took what he shared with me and got the bright idea to set up my lemonade stand in front of our local grocery store. Business was so good that I had to get more of my friends to come work for me to help manage drink orders.

I learned a valuable business lesson that summer. Tim Wood taught me that non-value added transportation is a waste in business — that my competition’s customer base was anyone willing to drive or walk up to their stand. On the other hand, I was in front of the grocery store, where customers could approach my stand entering or exiting the store.

I never had to worry about excessive inventory building up because people were coming and going left and right buying my lemonade. My production was right where it needed to be to serve the customer. My competition had wasted excessive lemonade and continued overproducing lemonade because of the time lapses between customer visits. They were forced to make a freshbatchfor every customer, which only led to longer waiting times.

My customers, on the other hand, were steady, and there were two opportunities to capture their attention for a sale or re-sale of our product. Because our competition was working harder to keep making fresh batches of lemonade, they were worn out faster and put less effort into selling. On the other hand, we stayed so busy that time just seemed to fly by. We had a person making the lemonade, another filling and refilling cups, and I was selling.

There were no defects in our process because we didn’t let a moment of non-value added periods to enter our system. We stuck to the advice Tim Wood gave us and made a lot of money that summer.

The customer always determines the value, and value is something they're willing to pay for. A value-add to any of your processes will always help increase your profit margins. A non-value add will do the complete opposite for your business, causing you to take on theseven deadly wastes. Knowing the impact of waste allowed me to structure my lemonade stand in a manner that created great profit margins and very satisfied customers. So when running your own business, just think of Tim Wood.

Transportation. Decreasing the amount of time it takes your clients to receive their product is added value to your company. By decreasing your time between orders, you allow for an increase inlead time.

Inventory. Excess inventory makes your product susceptible to accidents and mistakes, whether it's damage, spoilage or theft. The more product you have sitting in storage space, the less money your company is making.

Motion/Movement. Decreasing the amount of time you spend between stations or service calls will create a higher value-added experience and customer satisfaction rating for your business. Shortening the distance helps to decrease the wait time and motion it takes to complete a process.

Waiting/Delays. Decreasing waiting periods adds so much value to a company that customers will continue to use your services even if your prices are higher. When customers know they can get good service without waiting, your company becomes dependable, and that's value that customers are willing to pay for.

Overproduction. Decreasing the amount of product you make will keep significantly more money in your pocket. Know your numbers and focus on what people want and not what youthinkthey'll need. Overproduction becomes excessive inventory that becomes wasted money with low-to-zero profits for the company.

Overprocessing. Avoid overworking your machines or employees, as it will eventually slow down production whether through maintenance repairs (increased costs) or motivation (lack of work enthusiasm).

Defects. Doing things correctly the first time limits defects. Defects cost the company money, from having to throw out products, reprint reports, re-deliver products, or redo a service. To decrease your number of defects, increase your and your staff's attention to detail.